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What caught my eye this week.

Most of us moan now and then about life sneaking some booby-traps across our path to financial independence.

But few of us will face the hurdles overcome by The Humble Penny’s Ken Okoroafor and his family.

In a must-read guest post over at The Escape Artist this week, Ken relates how:

For a very long time, life in the UK felt like living in a prison. This is because we had a visa issue technicality on arrival in the UK. This meant we had no right to the NHS, no right to apply for jobs, no right to benefits etc. Basically no rights to anything till we heard back from the powers that be on what our future would be.

Months of waiting turned into years.

So how did we make money to buy food and survive? The only path available was to get creative and go underground.

A job at Pret would have been fantastic. However, that wasn’t an option. We needed to go lower – informal jobs cleaning factories, plate washing.

Do check out Ken’s full story to financial independence.

I’ve always been inspired by recent immigrants. In the main, statistics show they work hard, contribute more than they take out, and they are more entrepreneurial, too.

As I wrote back in 2007:

Mostly those who’ve taken the plunge and come to the UK don’t say, “We are very lucky to come here and scrounge from you stupid, lazy rich British.”

They say, “You British are very lucky to live here, to be able to make such money.”

They’re on a mission – the kind that happens when you decide to reinvent your life and choose your own path.

One of the many dismaying aspects of the Brexit referendum centered on immigration.

When the saner elements of the Leave campaign realized they couldn’t solely target EU migrants as a drain on the state – because such migrants contributed more than they put in – they shifted the argument to claim they were taking our jobs and driving down wages. Again with scant-to-no evidence.

One of the best retorts I ever read came in a comment from a Monevator reader:

The difference between “the poor Northener” and the “the poor immigrant” is that the poor Northeners can catch a train to visit their families on their days off, that they don’t have to learn a new language, and that they will have it even easier to find a job.

But because they don’t want to use their right for free movement (not even within their home country, FFS!), they decide to take that same right from other people.

[…]

London is a challenge for everybody who comes here, no matter where you are from.

I see 19-year-old girls who are still babies in their head leaving their family and their nice sunny beaches in Spain or Italy to come here and work 50-hour-weeks for £7.20 per hour and getting told off by their managers for being late for their 5a.m. shift, which happened because they don’t know what “this bus is on diversion” means.

They are afraid to lose their jobs for minor mistakes, because how shall they pay their rent…actually, how shall they pay their rent?

They don’t have a bank account and to open a bank account you need a proof of address and they don’t have a proof of address because flatsharers seldom have their name on utility bills, and their NINO appointment is only due in four weeks.

They are tired all the time, because they spend too much time commuting, and running errands or shopping for groceries takes five times as long in London as in any of their home towns.

When I say that my main reason for being here is that I love to be here, they look at me as if told them that I love to swim naked in the Thames every morning. I could go on forever.

The struggle is real, as they say. At least it is for those who take it on.

For others, easier to find a scapegoat.

Note: I’m publishing early this week. If I’ve missed anything good, please do feel free to pop it into the links below. Also, if people do want to debate immigration please do so respectfully. I’ll be moderating hard anything I personally deem racist or inflammatory. There are other places for that.

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The Slow and Steady passive portfolio update: Q3 2018

The Slow and Steady passive portfolio update: Q3 2018 post image

Since when do tortoises move sideways? In the three month’s following our last Slow & Steady check-in, we’ve made our least dramatic gain ever.

Our passive portfolio is up £313. Or 0.74% on last quarter.

Hey, it’s better than a punch on the schnoz.

Emerging markets are having a tough year, as are our government bonds. UK equities aren’t looking too chipper either, for some reason… The rest of the world is doing just fine, though, especially the US.

Here’s the view through our Unaugmented Reality Spread-sheeto Goggles™:

Our portfolio is up 9.91% annualised.

The Slow and Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £935 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts.

Since we last spoke, there’s been lots of fanfare celebrating the longest bull market in history.

And also why it isn’t the longest bull market in history.

Confused? Is the end nigh? Either way, equity valuations are high. Okay, US equity valuations are high. Many other regions look fine. Just make sure you’re not overexposed to Belgium and Denmark.

Sigh.

Ben Carlson of A Wealth Of Common Sense fame wrote a great post that encapsulates why high valuations are worrying.  Yet worrying about it is as useful as sacrificing goats to save the harvest.

It’s true that high valuations have historically been associated with poor returns over the subsequent ten to 15 years. You can expect a median annualised return of 2.2% from US equities for the next decade and a half, according to Star Capital’s financial archeology1. But expectations are not certainties. History shows the average return has ranged from 7.9% to -2.2% per year during similar periods when valuations have been frothy like a McFlurry in the mush.

Other researchers are equally or even more pessimistic. The average US return could be -0.6% over the next ten years according to the expected return chart of fund shop Research Affiliates2.

So are we like Wile E. Coyote after he’s run out of road and just before he looks down?

Perhaps, but Ben Carlson’s post also quotes research concluding that you can do precious little with valuation information.

Valuations can warn you of hazards ahead. They can’t help you swerve them.

Achtung! Achtung!

You may have heard of asset allocation strategies that adjust for market valuations. For example Ben Graham, mentor of Warren Buffett, suggested trimming equities when they seem expensive.

You could look to go to 25:75 equities:bonds when valuations are high, 50:50 when markets are fair value, and 75:25 when equities are a bargain.

Taking action like that might make you feel more in control. There’s every chance it won’t achieve much though, according to investing luminaries Cliff Asness, Antti Ilmanen, and Thomas Maloney of AQR.

Their paper did show that a simple valuation timing strategy edged a buy-and-hold strategy from 1900-2015. But it hasn’t worked for the last 60 years. The result was a draw from 1958-2015. And that’s before counting the higher costs of timing.

Here’s what AQR says about using valuation as a timing signal:

Valuations can drift higher or lower for years or decades, making it difficult to categorize the current market confidently as “cheap” or “expensive” without hindsight calibration, and therefore it is difficult to profit from such categorizations.

There are also reasons to believe that measures of valuation such as Shiller’s Cyclically Adjusted PE Ratio (CAPE) may no longer hold sway.

As AQR comments:

There may have been a structural change that keeps real yields low and inflation moderate for at least another five to ten years – perhaps a slowdown in equilibrium growth rate or a secular private sector deleveraging following decades of rising leverage. Or larger saving pools and investors’ better access to global capital markets at lower costs may have sustainably reduced the real returns investors require on asset class premia, and we’ll never see a reversal.

We simply do not know.

If they don’t know, then I don’t know. Especially when plenty of other credible sources also advise caution on using CAPE to tame the bull or the bear. See these posts from Larry Swedroe and Early Retirement Now (ERN).

As Big ERN says:

If you think that today’s CAPE of 31.3 is high, would you have sold equities back in the 1990s at a CAPE level of 31.3?

That would have been in June 1997 when the S&P 500 stood at 885 points. The S&P had another 79% to go before the peak (dividends reinvested).

The best valuation metrics have historically explained only about 40% of returns anyway, according to Vanguard.

Remember, too, we’ve been here before in this not-so-long bull market. For example, you might want to review a post by The Investor from June 2014. He also found many pundits warning the US market was over-valued – but he suggested passive investors sit on their hands.

The US market is up around 50% since then.

Inaction stations

So what to do? The main reason today’s post is a link-fest is because I wanted to put plenty of quality information at your fingertips – in case, like me, you’re prone to wondering when change must come.

And after reviewing it, I can’t award myself a meddle.

If you, on the other hand, must be master of your fate, then investigate overbalancing. It is a crude valuation timing strategy but a relatively benign one.

In the face of a world beyond our control, humility is a good answer. If you don’t like that answer, then diversification is the other good one.

The Slow & Steady portfolio is around 29% in US equities right now. If they flounder then we’ll look to fairly-valued Europe, the UK, and the Emerging Markets to carry on regardless.

New transactions

Every quarter we toss £935 down the bowling alley of global capitalism, hoping not to end up in the gutter. Our cash is divided between our seven funds according to our pre-determined asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet this quarter. We’re just topping up with new money as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.08%

Fund identifier: GB00B3X7QG63

New purchase: £56.10

Buy 0.272 units @ £206.27

Target allocation: 6%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.15%

Fund identifier: GB00B59G4Q73

New purchase: £336.60

Buy 0.931 units @ £361.18

Target allocation: 36%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%

Fund identifier: IE00B3X1NT05

New purchase: £65.45

Buy 0.214 units @ £305.81

Target allocation: 7%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.25%

Fund identifier: GB00B84DY642

New purchase: £93.50

Buy 60.24 units @ £1.55

Target allocation: 10%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.22%

Fund identifier: GB00B5BFJG71

New purchase: £65.45

Buy 32.21 units @ £2.03

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £261.80

Buy 1.633 units @ £160.29

Target allocation: 28%

UK index-linked gilts

Vanguard UK Inflation-Linked Gilt Index Fund – OCF 0.15%

Fund identifier: GB00B45Q9038

New purchase: £56.10

Buy 0.304 units @ £184.76

Target allocation: 6%

New investment = £935

Trading cost = £0

Platform fee = 0.25% per annum.

This model portfolio is notionally held with Cavendish Online. Take a look at our online broker table or tool for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £25,000. The Slow & Steady portfolio is now worth over £41,000 but the fee saving isn’t juicy enough for us to push the button on the move yet.

Average portfolio OCF = 0.17%

If all this seems too much like hard work then you can buy a diversified portfolio using an all-in-one fund such as Vanguard’s LifeStrategy series.

Take it steady,
The Accumulator

  1. Scroll down to the second chart. Which distribution of returns followed on comparable valuations over 15 years? []
  2. Click on Equities in the left-hand column > Expand all > Scroll down to US Large and US Small – the expected return appears in the chart, followed by the volatility number e.g. -0.6%, 12.8% []
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Painting: Two friends compare their investments.

Working out the best online broker or platform1 to use in your investing can be frustrating.

Just when you have got your head around shares versus funds, corporate bonds versus James Bond, and you’re finally ready to start investing, you discover dozens of different brokers to choose from.

All have their own similar-but-different fee structures.

We have long kept track of the different broker platforms and what they charge via our fee comparison table.

But comparing the charges levied by say Hargreaves Lansdown with those of Interactive Investor can be fiddly work.

Details matter. Some brokers charge lower fees for trading but sting you with high withdrawals fees. Others offer cheap trading, but make additional annual charges for each different kind of account you open with them – once for an ISA and again for a SIPP. There may be entry and exit fees, too.

You also need to compare fixed annual platform fees – for instance £15 a quarter – with the alternative method of levying a percentage fee – say 0.25% year – on your investment pot. Which is more cost effective for you?

What’s more, the winner of this equation will probably change as your nest egg grows! You’ll need to run the numbers every few years to keep your costs as low as possible.

Get tooled up to compare investing platforms

If you find all this fun then you’re in the right place. We’re investing nutters around here.

But most people frankly do not.

Out in the wider world, people use interactive tools to compare things like insurance products and energy bills.

Well, that is now possible with investing platforms, too.

We’re hosting an interactive comparison tool created by our partners at Broker Compare. We hope it will help casual investors get their money onto a suitable investment platform with a lot less hassle.

In fact anyone who wants to hone in fast on the best potential brokers will find it a quick way to generate a shortlist of candidates.

True, if you want to work out precisely what you’ll pay – in your specific situation – you’ll always need to do the sums for yourself.

There are just so many quirks out there, and any tool needs to make a few assumptions. Only you know exactly how you plan to invest and why.

But for many people, getting a good idea of the best platform to use quickly is the most important thing.

They’d rather know approximately what they’re going to be charged than laboriously figure out the exact costs from a dozen or more competitors.

Compare the brokers and save hundreds of pounds

Monevator regulars love to debate the minutia of different platforms with all the passionate enthusiasm of trainspotters arguing about the best non-standard railway gauges found in the wilder mountainous regions of Europe.

And long may that continue. (You’re among friends here.)

But the average person has little idea of their broker’s fees – or how what they’re paying compares to the competition.

For these people, five minutes with a comparison tool could be a quick way to save hundreds or thousands of pounds.

So what are you waiting for?

Note that just as with the price comparison websites we all use to compare energy bills or mortgages, Monevator may receive a payment from a broker that you visit or sign-up with via the table or tool. This does not affect the fees you pay – it’s made by the company to us for introducing you to their business.

Happy hunting – and let’s save some money!

  1. We tend to use the words ‘broker’ and ‘platform’ interchangeably. A broker is a stock broker – a person or company who trades and holds investments on your behalf. The platform is their website that lets you see and adjust your investments. []
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Weekend reading logo

What caught my eye this week.

Ever wondered whether you own enough home? If you’re casting your eyes around your living room and finding all the walls, windows, and doors present and correct, you might think this is a trick question.

But not if you’re James Max, the Financial Times columnist who writes [search result]:

While I am fully aware that you can only live in one property at a time, I’m firmly of the opinion that you need to own more than one home.

Three used to be the ideal number. Is this still the case?

Max isn’t suggesting you become a landlord. He says own three homes for your personal enjoyment.

Fair enough, it’s a point of view, but it’s a bit – well – rich to then claim:

News flash! There isn’t a housing crisis: there is a particular difficulty for those wishing to buy.

For those with a home, there is no crisis – other than the slowing market created by politicians.

Max apparently made his fortune on the back of his business smarts. He’s clearly smarter than me, because I took a different lesson from the guff about supply and demand.

Owning a lot of property also sounds like a lot of hassle. No doubt Max is right when he argues – as he did on the FT’s follow-up podcast – that not renting out your second and third homes does reduce the grief.

Less grief that is until the property-poor masses come to your door with pitchforks…

Home alone

It’s a tricky one for this self-professed capitalist, but on balance I think housing in the UK is a special case. There are clearly limits on our ability to meet demand with supply, and still live in a country we mostly all want to live in.

I’m therefore in favour of punitive taxes on owning multiple properties, where the extra housing is removed from the national housing stock. But I can understand why some feel this is an impingement on the rules of the capitalist game.

Luckily I’ll probably be spared too much hand-wringing. Becoming an owner of even one home has increased the complexity in my life. I can’t imagine tripling down.

One multi-property owner agrees with me. Blogger Fire V London finds:

The most painful complexity is real estate. I will let out a big sigh of relief when I eventually sell my old home. And I may well then repeat the process and sell my ‘buy-to-let’ flat.

Certainly, if I swapped out my ownership of these two assets and replaced them with just a diversified collection of public real estate listings […] my net yield would increase and I think my long term rate of return would increase.

Read the whole article for a candid recap on how investing can spiral out of control.

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